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Falling rates of interest helped mortgage giants Fannie Mae and Freddie Mac enhance third-quarter buy mortgage quantity by enterprise by $15 billion and proceed to develop their internet worths whereas staying worthwhile.
Collectively, Fannie and Freddie supplied backing for $164 billion in buy mortgages in Q3, up 10 p.c from Q2 and 6 p.c from a 12 months in the past, whereas rising their mixed internet worths to $147 billion, up 17 p.c from Jan. 1.
Fannie Mae’s $4.0 billion in Q3 internet earnings represented a 14 p.c decline from a 12 months in the past, however marked the corporate’s twenty-seventh quarter of consecutive, constructive outcomes, CEO Priscilla Almodovar famous.
Priscilla Almodovar
“This demonstrates our continued progress in transforming our business and strengthening our balance sheet, so that we fulfill our mission in any economic environment,” Almodovar mentioned, in a assertion.
Fannie Mae backed 231,000 single-family buy loans throughout the quarter, about half of which had been taken out by first-time homebuyers, and an extra 50,000 single-family refinance loans.
Freddie Mac backed 235,000 single-family buy loans and 49,000 refis in Q3. The 284,000 single-family loans the corporate backed represented 13 p.c development from a 12 months in the past.
That development helped drive Freddie Mac’s Q3 income up 3 p.c from a 12 months in the past, to $5.8 billion, with internet earnings up 16 p.c, to $3.1 billion.
Diana Reid
“Freddie Mac delivered another strong quarter,” CEO Diana Reid mentioned, in a assertion. “The company helped 415,000 families buy, refinance or rent a home, including 110,000 first-time homebuyers. We expanded support for renters, including by establishing a new grace period for rent payments. We also are providing relief to homeowners and resources for renters affected by recent hurricanes.”
Freddie surpasses Fannie in buy quantity
Supply: Fannie Mae and Freddie Mac earnings studies.
Whereas Fannie Mae has historically been the larger firm, Freddie Mac is giving its rival a run for its cash this 12 months.
Through the first 9 months of the 12 months, Freddie Mac backed $211 billion in buy loans, surpassing Fannie Mae’s $208 billion complete by $3 billion.
Fannie Mae backed $93 billion in new mortgages throughout Q3, up 8 p.c from Q2 and 4 p.c from a 12 months in the past. New buy mortgage enterprise was up 7 p.c from Q2 to Q3, to $80 billion, whereas refinancings grew by 18 p.c, to $13 billion.
Freddie Mac surpassed its rival in each classes, guaranteeing $98 billion in mortgages throughout Q3, up 15 p.c from the earlier quarter and Q3 2023.
At $84 billion, Freddie Mac’s buy mortgage enterprise grew by 13 p.c from Q2 to Q3, whereas new refis had been up 27 p.c, to $14 billion.
Mortgage portfolio development flattens
The slower tempo of originations as mortgage charges started climbing in 2022 has flattened development in Fannie and Freddie’s single-family mortgage assure portfolios.
Collectively, Fannie and Freddie had been guaranteeing $6.66 trillion in single-family mortgage debt as of Sept. 30. Whereas Freddie’s single-family mortgage assure portfolio has grown by 1 p.c this 12 months, to $3.08 trillion, Fannie’s has shrunk by the identical proportion, to $3.63 trillion.
Regular stream of income constructing internet value
At $4 billion, Fannie Mae’s internet earnings was down 10 p.c from Q2 and 14 p.c from a 12 months in the past.
The $440 million drop in income from Q2 to Q3 and $655 million from a 12 months in the past was primarily pushed by a lower in truthful worth positive factors on derivatives, buying and selling securities and different monetary devices that Fannie Mae makes use of to hedge threat, and a lower in profit for credit score losses, the corporate mentioned in its quarterly report to buyers.
Whereas Fannie Mae benefited from $447 million in truthful worth positive factors in Q2, truthful worth positive factors added solely $52 million to the underside line in Q3. Equally, the profit for credit score losses totaled $300 million in Q2, however solely $27 million Q3.
Freddie Mac’s $3.1 billion in Q3 income represented an 11 p.c enhance from Q2 and a 15 p.c enchancment from a 12 months in the past.
Freddie Mac attributed a lot of the $420 million year-over-year enhance in income to a decline in non-interest expense. In Q3 2023, the corporate acknowledged $313 million in extra bills for an hostile judgment in a category motion lawsuit by buyers.
The lawsuit by buyers in Fannie and Freddie challenged “net worth sweeps” of the mortgage giants’ income to the U.S. Treasury after the businesses had been positioned in conservatorship in 2008 throughout the Nice Recession of 2007-09.
Mixed internet worths hit $147 billion
With Fannie and Freddie having repaid a $191 billion taxpayer bailout, their Most popular Inventory Buy Agreements (PSPAs) with the U.S. Treasury Division have been amended to permit each corporations to retain all of their earnings.
To pave the best way for an eventual exit from authorities conservatorship, the mortgage giants have been regularly constructing their internet worths.
At $90.5 billion, Fannie Mae’s internet value as of Sept. 30 is up 16 p.c from Jan. 1.
Freddie Mac boosted its internet value by 18 p.c over the identical interval, to $56.4 billion.
That’s nonetheless in need of what Fannie and Freddie’s federal regulator, the Federal Housing Finance Company, believes can be essential to climate one other massive downturn.
“While earnings and net worth can absorb potential losses that arise from credit risk and earnings volatility, both Enterprises still exhibit accumulated deficits (negative retained earnings),” FHFA detailed in its annual report back to Congress in June.
Fannie and Freddie’s capital positions, “are improved from 2008, but are not robust enough to prevent a Treasury draw in the event of a large loss,” regulators mentioned.
Based mostly on their funds on the finish of 2023, FHFA estimates that Fannie and Freddie would collectively be required to carry a mixed minimal of $319 billion in adjusted complete capital to fulfill their risk-based capital, leverage ratio and capital buffer necessities.
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